your widget

your widget

Advertisement

30 April 2014

Africa suffers from another kind of poverty: lack of accurate
statistical data. And it is a tragic, messy situation. Nigeria nearly
doubled the size of its economy overnight -- a whopping 89 percent
-- surpassing South Africa to become Africa's largest economy and the
world's 26th largest.

What was thought to be a $270 billion economy one
day became a $510 billion economy the next day, adding some $240 billion
to its economy. To put the change into perspective, it is almost like
adding Israel's economy, or more than Portugal's, to Nigeria's economy.
It sounds like magic but it is not. Inaccurate economic data is
commonplace across much of Africa.

The International Monetary
Fund recommends that countries rebase their economies at least every
five years to account for newer industries and inflation. But it takes
decades in much of Africa to do so. Some economies update the base year
every three years. Nigeria last rebased its economy in 1990, almost a
quarter of a century ago. This basically means that we have no clue how
rich some of these countries are, because economic data are unreliable,
outdated and misleading. But something is clear: they are richer than we
think.

In 2010, Ghana updated its GDP calculations and its
economy grew by 60 percent overnight, changing its status from a
low-income country to a lower-middle-income one. The Financial Timesjust reported that Kenya
is set to make a statistical review of its economy next month, which
the country's National Bureau of Statistics expects to increase the size
of the economy by 20 percent, also putting Kenya into the middle-income
range.

Many economists and pundits are quick to point out that
such statistical corrections do nothing to impact the livelihoods of
the average person. They are right and wrong. Yes, people's wallets
won't change overnight like numbers do. But, accurately measuring
economic activity is key to putting in place the right policies and
attracting commensurate investment. With 510 billion worth in GDP, as we
now know, Nigeria's economy could have attracted even more investment
than its previous size allowed. It means a bigger market. It means
greater investor confidence in the country, and more political clout.

First,
let's take a look at what happened. With 1990 as the base year, Nigeria
was not counting much of its modern, booming sectors of the economy.
The growing film industry, also known as Nollywood -- the second
largest employer in the country after agriculture -- was completely left
out of GDP calculations. Other important sectors, such
telecommunications and Internet, were either nascent or non-existent in
1990 and therefore unaccounted for. For instance, the exploding mobile
industry, now with 120 million subscribers in Nigeria, was
underestimated in the old economy.

Instead, the country was still
counting a few thousands telephone customers, mostly landline, operated
by the state-owned company in the 1990s.

Things are even worse in
some other African countries where the base year is even far back into
the past. According to Morten Jerven, author of Poor Numbers: How We Are Misled by African Development Statistics and What to Do About It,
some 13 countries in Africa still uses a "base year" from the 1980s to
1990s. The size of these economies is probably as much undervalued as
that of Nigeria last month. In fact, Mr. Jerven estimates that
Sub-Saharan Africa might be underestimating its economic activity by the
tune of 50 percent. Such lack of data leads to statistical guesses and
misinformed policy-making.

Even worse, GDP figures exclude the
informal economy which employs the majority of people in Africa. The
labour of a subsistence farmer who tends his fields and cattle, and
raises his children in a remote village is excluded from GDP
computations. Add tens of millions of such cases and the data available
says little about what is going on. To be sure, measuring such
intricacies of economic activity is no easy task and economic sciences
have not yet figured a way out. Even for developed countries, it is a
tricky business to correctly measure economic activity.

Perhaps
the most interesting part of the new Nigeria's GDP figures is its
makeup. Long thought to be an oil-based economy, the new figures show
that Nigeria's economy is more diversified than previously thought. And
that is great news. The share of oil and gas in the economy is down to
just 14.4 percent of the economy, from 32.4 percent before the revisions
were made. The share of agriculture declined too, from 34.6 percent to
21.6 percent. The Telecoms industry jumped from 0.8 percent to almost 9
percent. Nollywood, previously unaccounted for, is 1.4 percent of the
economy. The public debt as a share of GDP declined from 16 percent to
just 11 percent, which means Nigeria has an opportunity to borrow more
money to finance its development projects.

Despite this being
good news, Nigeria still faces deep economic challenges: 60 percent of
its people still live in poverty, poor infrastructures hinder economic
activity, Boko Haram continues to destabilize the north of the country
and entrenched corruption is unlikely to go away anytime soon. But since
development is not an invention, any step forward, however short or
slow, is welcome and celebrated.

This should serve as a wake-up
call for other countries to update their base year, update economic data
and GDP figures to avoid absurd and murky comparisons, such as the one equating the economy of Sub-Saharan Africa to that of Chicago and Atlanta. Things are better than that.